Document 156104

Understanding restricted stock
Tax consequences
Viewing your account online
Getting help
released summer 2011
What is
Restricted Stock?
Awarded to you by your company, restricted stock
is a share of ownership in your company, subject
to limitations. The limitation, or restriction,
applies to the length of time you must hold your
restricted stock before selling the shares. This
length of time is known as the vesting period.
Generally, restricted stock “vests” — or becomes
unrestricted — in increments over a period of time.
As the service provider for your company’s rest­
ricted stock plan, Morgan Stanley Smith Barney
helps you keep track of your awards and provides
you with online access to your restricted stock
account — and help when you need it.
Q. Can I sell or transfer my restricted
stock award?
A. You cannot sell or transfer your
restricted stock awards until they vest.
Once an award vests, all restrictions
are lifted and the stock is released to
you to hold, sell or transfer.
Q. What happens to my unvested
awards if I leave my company?
A. Unvested awards may be subject
to forfeiture if you leave the company
either voluntarily or involuntarily.
Please consult your plan documents
for specific details regarding your
leaving your employer.
Q. Can I receive dividends or vote
on my shares during the restricted
A. During the restricted period you
may receive any dividends declared
by your company on your restricted
shares as well as retain voting rights.
question and answer
Q. What is a restricted stock unit?
A. Companies may award restricted
stock shares or restricted stock
units. Restricted stock shares are just
that — shares of stock. Units can be
paid either in cash or, more likely, in
shares, upon vesting. Units resulting in
shares convert to stock, typically at a
1:1 ratio. Since the underlying shares
are not issued until the units vest, you
will not have voting rights on unvested
units. The units are also not eligible for
dividends (since dividends are paid
only on actual stock), however, some
plans are designed to payout a cash
amount that is equivalent to dividends
paid on the underlying stock (referred
to as “dividend equivalents”). Generally,
taxes are due when the unit vests.
Q. What is the difference between
a stock option and a restricted stock
A. A stock option is the right to buy
company stock at a fixed price for a
fixed period of time. Any value you
realize from a stock option would
require the value of the stock to be
higher than your option price when
you exercise your option. In contrast,
restricted stock is an award of shares.
Unlike options, there is generally no
upfront cost to you for restricted stock,
though taxes are due when they vest.
As a result, restricted stock typically
has some value to you, even if the stock
price drops after the award date.
Q. What is the difference between the
award date and the vest date?
A. The award date is the day on which
your company gives you restricted
stock shares or units, though you are
prohibited from selling or transferring
them for a certain time. On the day that
time is up — the vest date — you are free
to sell or transfer the shares.
Q. How much is my restricted stock
A. You can determine the unrealized
value of your restricted stock by
multiplying the number of shares
awarded to you by the current market
price of the stock, though this calculation
will not account for taxes due at vest or
fees/commissions charged.
morgan stanley smith barney | 2011
Q. Can I view information about my restricted stock online?
A. Once your restricted stock award
has been granted, it will be displayed
online at, the
Morgan Stanley Smith Barney web
site for stock plan participants. You
can view vesting dates, model potential
gains based on hypothetical stock price
values (on vested shares), and sell your
shares once restrictions are lifted.
Q. How and when can I sell my restricted stock shares and receive my sales
A. Upon vesting, you can sell your
shares at Our
“Transaction Wizard” will guide you
through each step. You may receive
the proceeds from your sale in one of
several ways:
Transfer into a Morgan Stanley
Smith Barney account:
If you are a current Morgan Stanley
Smith Barney brokerage client, we will
transfer your sale proceeds into your
account three business days after the
trade date (to account for a three-day
“settlement” period that applies to all
stock market transactions). If you do
not have a brokerage account with
Morgan Stanley Smith Barney, we will
open a limited purpose account and
transfer your sale proceeds.
Check via regular mail:
If y o u c h o o s e t h i s m e t h o d ,
Morgan Stanley Smith Barney will
mail your sales proceeds. You will
typically receive your proceeds within
8 — 10 business days of selling your
restricted stock.
Check via overnight delivery:
After the appropriate settlement
period, Morgan Stanley Smith Barney
can send your proceeds overnight, for
a fee. You will receive a check 4 — 5
business days after your trade date (to
account for a three-day “settlement”
period that applies to all stock market
Wire transfer:
For a fee, Morgan Stanley Smith Barney
can wire proceeds to your bank on
Settlement (Trade Date plus three).
Wire transfers are in U.S. dollars.
Foreign currency wire:
For a fee, Morgan Stanley Smith Barney
can wire your proceeds to your bank in
your local currency. You will receive
the proceeds 4 — 5 business days after
the trade date.
Q. Are restricted stock awards/units
A. Generally, taxes are due at vesting.
When the shares vest, you will realize
compensation based on the fair market
value of the shares on that date. For
example, if you have 100 shares that
vest when the fair market value is $20
per share, you will recognize ordinary
income of $2,000. Your company
may offer various options for paying
the income tax due on the $2,000,
including choices such as:
Your company will automatically
withhold some of the vested shares
morgan stanley smith barney | 2011
to cover the taxes due. Using the
example above and applying a default
tax withholding rate of approximately
40%, the taxes due would be $800
($2,000 X 40% = $800/$20 per share),
equal to 40 shares. Your company
would withhold the 40 shares and
release the remaining 60 shares to you.
Payroll Deduction/Cash:
You may also have the option to pay
the taxes directly to your company via
payroll or check. Your account will
be credited with the full amount of
vested shares.
Morgan Stanley Smith Barney will
sell sufficient vested shares to cover
the taxes and commissions due. Using
the example above, your company
would sell approximately 40 shares
and release the remaining shares to
your account.
The information provided above
is for illustrative purposes only,
we recommend discussing your
particular situation with a tax
advisor. Please also refer to your
plan documents for details on your
company’s tax payment methods.
Q. What are the tax consequences when
I sell my shares?
A. When you sell your restricted stock
shares, you will be required to pay
tax on any short-term or long-term
capital gains. To calculate your capital
gains per share, subtract the stock’s
fair market value at time of vest from
the sale price. Since income tax was
already paid on the fair market value
of the shares at vest, you will be liable
only for capital gains logged after
the vesting date. If your sale price is
lower than the fair market value on
the vesting date, you would realize
a capital loss. Please note that we do
not withhold any taxes at the time of
sale. Please consult your tax advisor for
more information.
Q. What is a Section 83(b) election and
how does it work?
A. A Section 83(b) election is an
optional special tax filing with the
Internal Revenue Service that requires
you to pay the ordinary income taxes
due on your restricted stock within 30
days of the award date, rather than at
the time of vest. Such a filing enables
you to establish your cost basis right
away since you pay tax on your grant
upon award, rather than wait for
vesting. No additional tax will be due
until the shares are sold, regardless of
change in value. In addition, assuming
the stock is held as a capital asset,
future gains (or losses) would be taxed
only as capital gains, and therefore
would generally be subject to favorable
capital gains tax rates.
Despite these potential advantages
you should keep in mind that if the
stock price declined by the vesting
date, there is a risk that you may have
paid more tax based on the fair market
value on the grant date than you would
be obligated to pay at vesting, based
on the fair market value of the stock
at vesting. And despite the fact that
taxes have been paid, the shares are
still subject to forfeiture if you leave the
company. Whether to make a Special
Tax 83(b) election is an important
tax and financial decision, so please
consult your tax advisor.
Q. Who do I call if I have questions
about my restricted stock?
A . C a l l t h e Mo rg a n S t a n l e y
Smith Barney Customer Service
Center at 1-800-367-4777 (toll-free) or
Morgan Stanley Smith Barney LLC and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it
is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek
advice based on the taxpayer’s particular circumstances from an independent tax advisor.
© 2011 Morgan Stanley Smith Barney LLC. Member SIPC.
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